Does Open-Source Increase the Value of Talent?

For the last few weeks, I have been trying to unravel the connection between the value of talent and open-source.

Inevitably, some products have a high level of importance but few people who truly understand it. This creates high demand with low supply, increasing the value of those people. But that isn’t special to open-source; it is true for any product with high demand + low supply. These just happen to be open-source. For example, this morning, a friend of mine used Hadoop as an example of a product that is very important to many companies, yet there are very few people in the world truly capable of digging into the core code itself and fixing it. The cost of those people is quite high, and they refuse to work on it if they cannot contribute back to the community.

Since the cost of talent is largely driven by the supply and demand for the specific skills – infrastructure engineering or AWS or Java – and not by whether the product is open- vs closed-source, we cannot use those numbers as a way to evaluate the value of open-source talent.

We can, however, look at an acquisition?

The catalyst for this thought process was the acquisition of Joyent by Samsung a few weeks ago. At heart, there really only are a few reasons for a technology acquisition:

  1. Customers
  2. Competition
  3. Product
  4. Talent

Let’s work through each of those in turn for this acquisition:

Customers

You have a customer base that I want. I believe the will be more valuable inside my company than yours due to some mutual benefit that occurs when they are under the same roof: economies of scale, economies of scope, more capital at a cheaper cost, etc.

Samsung hardly is hurting for customers. It is a massive business by any standards in multiple industries. Conceivably, one could argue that Samsung is (not even) a bit player in cloud computing, as opposed to Joyent, who, while not very large or dominant still reportedly have a decent and passionately devoted customer base. Nonetheless, this is unlikely to drive valuation too high.

Competition

You and I are competitors. By acquiring you, I lock in a larger market share, enabling me to get better economies of scale and possibly the ability to raise prices and set standards.

Competition as a reason for this acquisition is a non-starter. Joyent posed no serious competitive threat to Samsung’s potential interest in being a cloud provider. If they really wanted to squeeze competition, they would have gone after the big players, Amazon Web Services followed by Azure and Google Cloud. I do not know if Samsung could have bought them, but buying someone that large would be the only way to reduce the competitive environment.

Product

You have a product I want. With that product and my company’s assets – intellectual, capital, brand or human – I have a lot of potential power in the market.

Product also is a non-starter. Almost the entire Joyent’s codebase is released open-source under the fairly liberal Mozilla license.

Samsung did not need to buy Joyent for their products; they simply could have downloaded and used them, even customizing them to suit their needs.

Talent

With the other ones pretty much discarded, talent, known as an “acquihire”, is all that remains.

What is the value, then, of acquiring Joyent’s talent?

According to Crunchbase’s Joyent entry, they have received 7 rounds of investment totaling $126MM over the last 6.5 years. We don’t know the terms of preference and built-in coupons, but it is reasonable to assume that it would take at least double the invested amount before holders of common stock – founders and employees with ESOP – would see any money.

So the purchase price had to be at least $252MM for employees to see a penny. Considering that some have been there for years, and would not be happy without a real payday, and that in the weeks since the announcement the employees appear, by all public accounts, to be a happy lot with no serious grumblings online, the purchase price had to be at least $300MM, more likely $350-400MM or higher.

I do not know how many employees they have – LinkedIn has it in the 51-200 employees category – but that is a lot of money to pay for an acqui-hire.

Yet Samsung is a smart group. They do not throw money away. They know what they are doing.

There are two possible explanations I see:

  1. The customers are worth more to Samsung as a jumpstart for their cloud computing ambitions.
  2. The talent is worth more in the open-source world.

The second possibility was suggested to me at LinuxCon/ContainerCon by Mike Williams of Codethink.

It may not be only the talent in terms of the technology per se, but also the knowledge of how to produce and manage open-source technology. Samsung not only is hiring technology talent; they are hiring knowledge of how to build and release open-source software, how to market and sell software and services when that very software is freely available, how to product manage that software, how to run operations and finance.

Mike suggested the possibility that Samsung may not only be buying talent, but a unique type of talent with which they have very little experience. In addition to jumpstarting their cloud services, Samsung may be revving their open-source engine. That is a whole lot more impactful and strategic.

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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